Bank of Italy chides parties over free-spending election pledges

VERONA, Italy, Feb 10 (Reuters) - Italy’s central bank chief on Saturday appealed to political parties contesting next month’s election to pursue responsible policies and not lose sight of the need to cut the huge public debt.

Ahead of the March 4 parliamentary election all the main parties, and especially the centre-right coalition leading the polls, have tried to woo voters with promises of sweeping tax cuts and higher spending.

In a keynote speech in the northern city of Verona, Bank of Italy Governor Ignazio Visco called instead for “prudent budgetary policies” in order to “help make markets more confident in the reduction of the public debt-to-GDP ratio.”

Italy’s debt has risen to 132 percent of gross domestic product and is the highest in the euro zone after Greece’s.

Nonetheless, parties of all stripes say they want to renegotiate the European Union’s fiscal rules and either raise the budget deficit or slow the pace of its reduction as promised to Brussels by the outgoing centre-left administration.

“An increase in the public deficit is no substitute for reform and could prove counterproductive, since the problem of the national debt cannot be sidestepped,” Visco warned, without naming any party directly.

“Even without the constraints of the Stability and Growth Pact, the need remains for us to make responsible choices.”

After years of belt-tightening, the parties now say the best way to lower the debt is to boost Italy’s chronically sluggish economy by cutting taxes and spending more, but Visco said reforms should take precedence.

“To strengthen growth in the medium term, further steps must be taken towards structural reforms, improving public services, and rationalizing and stabilizing the tax laws,” he said.

If fiscal policy remains prudent and responsible economic policies are pursued, Italy’s economic recovery over the last few years is unlikely to be derailed when the European Central Bank eventually raises interest rates, he said.

Visco said the economy will grow by around 1.5 percent this year, the same rate as in 2017 and in line with the government’s official projections.

That is the strongest growth Italy has seen since 2010 but would still be among the weakest performances among European countries. (writing by Gavin Jones; editing by Clelia Oziel)